Post by Tillirou on Apr 29, 2009 2:11:12 GMT 4
Cyprus: Further developments enhance Cyprus' position in international tax planning
Cyprus is established as an international business and financial centre and has the lowest corporation tax rate in the EU of 10%. A significant number of double tax treaties have been concluded, the usage of which, has greatly prevented double taxation resulting in a reduction of the tax payable. The existence of such treaties combined with the low corporate income tax in Cyprus offer tremendous possibilities for tax planning through Cyprus.
The aim has always been to establish Cyprus as a tax incentive country and not as a tax haven. A Cyprus holding company can be effectively used for international tax planning purposes. Besides the extensive double tax treaties and the 10% corporate tax rate, Cyprus offers the ability to pull profits from the country of the subsidiary (if it holds at least 1% of its share capital) with very low withholding tax, provided a DTT is in existence.
A Cyprus holding company can benefit from the EU parent-subsidiary directive whereby dividends paid between associated enterprises that are both situated in the EU (if it holds 15% of its share capital as of January 1 2009) are made without any withholding taxes. Beyond this the fact that under domestic legislation neither withholding tax on dividends distribution to the non resident shareholders of the Cyprus holding company nor capital gains tax on the disposal of shares are levied, offer Cyprus a further additional incentive.
The Cyprus special contribution to the defense fund received special clarifications and more specifically dividend exemption from abroad constituting an additional tax incentive for the island.
The non-applicable exemption relates to the charge of foreign tax on the income of the paying dividend company which is 'substantially lower' than the tax charge of the company which is a resident in the Republic or not and has permanent establishment on the island. The Inland Revenue Department proceeded into offering a determination, clarifying that substantially lower foreign tax means below 5%.
Tax treatment of exchange differences arising directly or indirectly by trading in shares constitute a new change in the Cyprus tax regime. Any relevant profits deriving from such exchange differences are tax relieved and the relevant exchange losses are not allowed to be deducted from the taxable income, however, this change will be applicable for 2003 tax year and onwards.
Never ending tax-privileged legislation is extended to include interests attributable to intangible costs of fixed assets in terms of considering goodwill, trade or business name and so on as part of the assets used by the company. The expenses for the acquisition of the intangible costs of fixed assets should take place from independent third parties, otherwise the new treatment available cannot take place. As a result, the related company paying interests are deductible from the taxable income.
Any gains arising from disposal of securities is exempted from tax under the Cyprus jurisdiction. The term securities was retaining a limited definition until recently where the term securities was expanded in order to include more instruments within the meaning of the law for example: Founder's shares, preference shares, options on titles, debentures, bonds, units, options and so on. The evolution of the list of instruments defined as securities increase significantly the competitiveness of the Cypriot jurisdiction in terms of tax planning.
Phani Tillirou
phani.tillirou@eurofastglobal.eu
Cyprus is established as an international business and financial centre and has the lowest corporation tax rate in the EU of 10%. A significant number of double tax treaties have been concluded, the usage of which, has greatly prevented double taxation resulting in a reduction of the tax payable. The existence of such treaties combined with the low corporate income tax in Cyprus offer tremendous possibilities for tax planning through Cyprus.
The aim has always been to establish Cyprus as a tax incentive country and not as a tax haven. A Cyprus holding company can be effectively used for international tax planning purposes. Besides the extensive double tax treaties and the 10% corporate tax rate, Cyprus offers the ability to pull profits from the country of the subsidiary (if it holds at least 1% of its share capital) with very low withholding tax, provided a DTT is in existence.
A Cyprus holding company can benefit from the EU parent-subsidiary directive whereby dividends paid between associated enterprises that are both situated in the EU (if it holds 15% of its share capital as of January 1 2009) are made without any withholding taxes. Beyond this the fact that under domestic legislation neither withholding tax on dividends distribution to the non resident shareholders of the Cyprus holding company nor capital gains tax on the disposal of shares are levied, offer Cyprus a further additional incentive.
The Cyprus special contribution to the defense fund received special clarifications and more specifically dividend exemption from abroad constituting an additional tax incentive for the island.
The non-applicable exemption relates to the charge of foreign tax on the income of the paying dividend company which is 'substantially lower' than the tax charge of the company which is a resident in the Republic or not and has permanent establishment on the island. The Inland Revenue Department proceeded into offering a determination, clarifying that substantially lower foreign tax means below 5%.
Tax treatment of exchange differences arising directly or indirectly by trading in shares constitute a new change in the Cyprus tax regime. Any relevant profits deriving from such exchange differences are tax relieved and the relevant exchange losses are not allowed to be deducted from the taxable income, however, this change will be applicable for 2003 tax year and onwards.
Never ending tax-privileged legislation is extended to include interests attributable to intangible costs of fixed assets in terms of considering goodwill, trade or business name and so on as part of the assets used by the company. The expenses for the acquisition of the intangible costs of fixed assets should take place from independent third parties, otherwise the new treatment available cannot take place. As a result, the related company paying interests are deductible from the taxable income.
Any gains arising from disposal of securities is exempted from tax under the Cyprus jurisdiction. The term securities was retaining a limited definition until recently where the term securities was expanded in order to include more instruments within the meaning of the law for example: Founder's shares, preference shares, options on titles, debentures, bonds, units, options and so on. The evolution of the list of instruments defined as securities increase significantly the competitiveness of the Cypriot jurisdiction in terms of tax planning.
Phani Tillirou
phani.tillirou@eurofastglobal.eu